Good morning. Here’s what happened that night and what you need to know today.
1.
Rate debate: Federal Reserve Governor Michelle Bowman warned that the US central bank may have to raise interest rates again if inflation remains high. Speaking in London, Bowman said it was not yet appropriate to cut interest rates. He highlighted concerns that immigration and aggressive federal spending could boost demand and slow the progress of inflation. Although inflation has fallen from more than 7% in 2022 to 2.7% in April 2023, it still exceeds the Fed’s 2% target. Bowman, a constituent on the Fed’s rate-setting committee known for her hawkish stance, suggested further rate hikes could be necessary if inflation remains at current levels. “I remain prepared to raise the target range for the Federal Funds Rate at a future meeting if inflation stalls.” Her comments underscore the divergent views within the Federal Open Market Committee on the possibility of rate cuts this year. Investors are currently betting on a quarter-point cut by mid-September, the last chance before the November elections. (Federal Reserve)(Financial Times)
2.
OrthodoxIsrael’s Supreme Court has unanimously ruled that ultra-Orthodox Jewish seminary students should be drafted into the army, creating new political challenges for Prime Minister Benjamin Netanyahu. The court ruled that Israeli military service applies to ultra-Orthodox people, just like any other citizen. The landmark decision ends decades of exemptions that allowed ultra-Orthodox men to avoid military service, a point of contention amid Israel’s ongoing conflicts with Hamas and Hezbollah. Netanyahu’s already fragile coalition, which relies on two ultra-Orthodox parties, now faces increasing pressure as a result of the ruling. The court’s ruling also puts an end to state subsidies for seminaries that avoid military service. While opposition parties welcomed the ruling as a step towards equality, ultra-Orthodox leaders argued it was a threat to their traditions. (Reuters)(Associated Press)
3.
Kenya’s tax frenzy: Police opened fire on protesters outside Kenya’s parliament on Tuesday, killing at least five people and wounding dozens, as lawmakers passed a controversial funding bill to raise taxes. Protesters, opposing the new taxes amid economic downturns, overwhelmed police and set fire to parts of the parliament building. Internet services were disrupted across the country during the protests, which started peacefully but turned violent as the crowds grew, leading to clashes in several towns including Eldoret, Mombasa and Kisumu. Opposition leader Raila Odinga called for the bill’s immediate withdrawal and condemned the police’s harsh response. Despite some concessions from the government, the bill aims to raise an additional $2.7 billion in taxes to address Kenya’s debt burden. President William Ruto, who was at an African Union retreat, faced mounting demands for his resignation. (Reuters)(Associated Press)
4.
Team Problems: The EU has accused Microsoft of anti-competitive behavior for bundling its Teams app with its Office suite, in the first such antitrust action against the tech giant in more than a decade. The European Commission’s list of formal concerns claims that Microsoft’s integration of Teams gives the company an “undue advantage,” hurting competitors like Slack and Zoom. Microsoft made changes earlier this year to sell some applications without Teams, but EU officials deemed these insufficient. Microsoft President Brad Smith said in a statement that the company would “work to find solutions to address the committee’s remaining concerns.” Sabastian Niles, president of Slack owner Salesforce, which filed the original complaint against Microsoft, said the proceedings are “a win for customer choice.” Microsoft has the right to defend itself against the allegations. If a violation is confirmed, the company faces fines of up to 10% of its annual global turnover. The case in Brussels comes as the tech giant also faces regulatory scrutiny over its partnership with OpenAI and rivals’ complaints about allegedly unfair cloud computing licensing deals. (European Commission)(Capital Brief)(Financial Times)
5.
Real gap: U.S. Ambassador to China Nicholas Burns says Beijing is undermining diplomatic efforts to increase engagement between Americans and Chinese citizens, contrary to an agreement struck by Presidents Joe Biden and Xi Jinping last November. In an interview with the Wall Street Journal, Burns said Chinese authorities are intimidating citizens attending U.S.-organized events in China and stoking anti-American sentiment. “They say they are in favor of reconnecting our two populations, but they are taking dramatic steps to make that impossible,” Burns told the newspaper. He counted 61 public diplomatic events – including documentary screenings, cultural performances and panels on mental health and female entrepreneurship – where Chinese government authorities pressured Chinese citizens not to go or tried to intimidate attendees. The comments show that, after last year’s fragile detente, U.S. officials are increasingly concerned about Beijing’s sincerity in improving ties. (Wall Street Journal)
6.
AI race: Chinese AI companies are rushing to attract OpenAI users following reports that the US company plans to restrict access to its API in China and other countries. OpenAI’s ChatGPT is not available in mainland China, but many Chinese startups have managed to use the API to develop their own applications. In a statement to Reuters, OpenAI confirmed it will block API traffic from unsupported regions starting July 9, prompting Chinese users to receive warnings about the coming restrictions. In response, Chinese AI developers such as Baidu, Alibaba Cloud and Zhipu AI are offering migration services and free tokens, or processing capacity, to OpenAI users, the news agency reported. (Reuters)
7.
Upturn in inflation: Canadian inflation unexpectedly rose to 2.9% in May from 2.7% in April, defying economists’ expectations of a slowdown to 2.6%. The surprise increase, driven by higher prices for services such as mobile services, travel tours, rentals and air transport, led traders to reduce the chances of a rate cut by the Bank of Canada (BoC) in July to less than 50%. “(The) Board of Directors remains heavily reliant on data, and this reversal will support their restrictive bias,” Andrew DiCapua, senior economist at the Canadian Chamber of Commerce, told Reuters. CPI median and CPI trim, the Bank of Canada’s preferred measures of underlying inflation, rose for the first time since December. The BoC, which earlier this month cut interest rates for the first time in four years to 4.75%, will hold its next policy meeting on July 24. Following Statistics Canada’s release on Tuesday, money markets lowered their bets for a July cut to 46% from 70% on Monday. (Reuters)
8.
Steel standoff: Nippon Steel’s bid to acquire US Steel for US$14.9 billion ($22.5 billion) is in jeopardy amid concerns about possible job cuts and plant closures, The Washington Post reported, citing labor officials and previously unreported correspondence . The workers’ union United Steel, backed by President Biden, has opposed the deal from the start, fearing it could hurt American workers. Former President Donald Trump is also against the deal. The newspaper reported that while Nippon Steel offered no layoffs or closures under the contract and offered a $1.4 billion investment in union facilities, the union remains skeptical because of the conditional clauses in the proposal. The merger would make Nippon Steel the world’s third-largest steel producer, boosting its competitiveness against Chinese rivals. The company and the union will start arbitration proceedings in August. The outcome is crucial for Biden and Trump, who are battling for union support in key states. The deal is also under investigation by the Justice Department and the Committee on Foreign Investment. (The Washington Post)